Oudh Sugar Mills - Rs.120.50

Incorporated in 1932, Oudh Sugars Mills Ltd. (OSML) belongs to the renowned K.K. Birla Group of companies with interests in fertilizers, chemicals, sugar, heavy engineering, textiles, shipping, newspaper publishing, etc. Through organic and inorganic modes of growth, OSML has cautiously but consistently grown from a single unit sugar manufacturer to a company with three sugar units with an aggregate crushing capacity of about 18,000 TCD and two distilleries producing 20.53 million litre per annum of industrial alcohol/ethanol. It also has Bio-Compost plant which produces and sells organic fertilizer and has a fruit and vegetable canning factory at Bamrauli near Allahabad and markets food products under the brand name ‘Morton’.

OSML has three sugar plants - Hargaon Sugar Mills and Rosa Sugar Works in UP and New Swadeshi Sugar Mills in Bihar with a crushing capacity of 7500, 4000 and 6500 of sugarcane crushed per day respectively. All the sugar factories produce pure crystal cane sugar of the highest purity. It has two distilleries units at Hargaon and New Swadeshi with a capacity to produce 11.53 million litres and 9 million litres of industrial alcohol/ethanol per annum respectively. The molasses generated in the sugar factories are used as raw material by these distilleries. Due to the buoyant market conditions in the sugar industry, the company has aggressive capex plans of around Rs.250 cr. The Hargaon sugar mill is being expanded from 7500 to 10000 TCD with a co-generation plant of 6 MW at an estimated cost of Rs.96 cr. and is likely to be completed in a few months. It is also augmenting its Rosa Sugar work capacity to 5500 TCD with a Co-generation plant of 20 MW at an investment of around Rs.120 cr. It also plans to increase the capacity of New Swadeshi Mills by 1000 TCD along with a 5 MW cogeneration plant with a capex on Rs.25 cr. Post expansion, its total crushing capacity will stand enhanced to 23000 TCD. More importantly, with the setting up of cogeneration units, the company will reduce its power and fuel costs substantially apart from generating revenues from the sale of excess power.

The company has a sizeable amount of buffer inventory of 1,30,000 MT of sugar as on 31st March’06. With a good monsoon expected this season and with increased capacity, OSML can perform much better in FY07. It recently announced splendid numbers for March’06 quarter. For FY06, ending 30th June’06, the company is estimated to report sales of Rs.475 cr. and net profit of Rs.40 cr., which translates into an EPS of Rs.22 on its equity of Rs.18.20 cr. and may even declare 50% dividend for FY06, which would give an yield of more than 4% on its current market price. For FY07, it may clock turnover of Rs.550 cr. with net profit of Rs.45 cr. i.e. EPS of Rs.25. With a 52-week high of nearly Rs.300 and with no risk of major equity dilution, this is one of the best bets in the sugar sector. Investors can buy it at CMP with a price target of Rs.200 (75% appreciation) in 12-15 months.